Search This Blog

Wednesday, May 16, 2012

Lightning didn't strike twice

After being hit by lightning and left soaked by a rain shower during his first day as French President, you'd forgive Francois Hollande for thinking that something would go seriously wrong at his first meeting with German Chancellor Angela Merkel. However, as expected, yesterday's meeting wasn't overly exciting.

After the mandatory comments about the importance of the Franco-German relations, a German journalist asked Hollande whether France would ratify the fiscal treaty as it stands (the question on everyone's mind), to which Hollande answered:

"Our method will be to put all the ideas on the table and then see what legal implications they can have."

Sufficiently vague enough to allow for a compromise, i.e. fiscal treaty remaining intact but with some sort of add-on. Merkel was also stressed that "the fiscal treaty was signed by 25 [EU] countries last March", adding,

"We have different approaches to achieve growth, but we will share our ideas and see what the different paths to stimulate growth are."

The upcoming meeting of EU leaders on 23 May could be the first real test. For the moment, a new poll shows that half of French think their new President will not be able to twist Merkel's arm on the fiscal treaty.

The second big issue was Greece (what else?). Both leaders said that France and Germany want Greece to remain in the eurozone, and made some interesting remarks. In particular, Merkel said,

"We’re ready to do everything we can…to help Greece structurally."

Hollande said that Greece must respect its previous commitments, but added,

"People in Greece need to know that we will help them – through growth-enhancing measures, through support to [Greece’s] economic activity – to ensure their presence in the eurozone."

Is this a signal that Germany could be willing to give Greece more time to meet its deficit targets? Too early to tell. German Finance Minister Wolfgang Schäuble also ruled out re-negotiating the conditions attached to the EU-IMF Greek bailouts in an interview with German radio Deutschlandfunk this morning.

The most important outcome of the meeting was always going to be the tone it struck. Clearly, it was conciliatory, the focus was always on compromise. It will be interesting to see if this holds throughout the upcoming negotiations on Greece. Those expecting a clash between an irresistible force and an immovable object (the much maligned growth vs. austerity debate) may yet be disappointed.